Acquired
03:09:55 · David Rosenthal, Ben Gilbert
[03:09:55] S1: Yep. You definitely need to have the ability to do that. I mean, even Vanguard's real estate on their campus in Malvern, when they were constructing that, they tapped the shareholders. They tapped the fund holders for essentially construction loans Oh, interesting. To construct the campus. Yes. You do need to have enough capital in the base and ability to do that in order to fund your fixed costs. [03:10:19] S0: Whereas, like, I don't know if REI could raise a bond from its members. I mean, the fact that fifteen years ago, I paid $30 to become an REI co op member. Right. Am I really a member? [03:10:30] S1: If they called you today and they're like, we need your money to finance, you know, the next story build out, you'd be like, no. [03:10:36] S0: Right. The other thing, Vanguard was sort of in a unique place to rely on Wellington's active stuff to provide profits during the dark wandering years. I mean, usually, way you end up with shareholders is you need to raise money, and Vanguard figured out a way to bootstrap off of the old business. [03:10:56] S1: Yep. Yep. All that said, I totally agree. I think you need to be operating in a space such that you can access capital. [03:11:04] S0: Everything I just said is an argument for founder ownership, not customer ownership. Like, if you didn't need to raise capital, then the founders would just own the business forever. But this is very unique where the customers are actually the owners of the business.
03:11:04 · Ben Gilbert, David Rosenthal
[03:11:04] S0: Everything I just said is an argument for founder ownership, not customer ownership. Like, if you didn't need to raise capital, then the founders would just own the business forever. But this is very unique where the customers are actually the owners of the business. [03:11:16] S1: Yep. And that's where I was gonna go. It really takes a very, very special group of people to do this because you are removing a huge amount of wealth creation potential. [03:11:29] S0: You have to make a noneconomic decision. You have to decide that something you would own as the founder, you don't own, and the community owns instead. [03:11:37] S1: Yes. And even if you get paid a good salary, and Vanguard, you know, pays high salaries commensurate with the industry Yep. You're not getting equity ownership, and you're thus not gonna get, you know, incredible wealth generation. [03:11:52] S0: And you're gonna have to go through absolute hell to will this thing into existence more so than if you had regular shareholders because you're you you have to do crazy things to get through in the lean years, especially early on. Usually, there's some economic component to being willing to to go through all that. And this is admitting, I will never ever have founder economics or economics of any kind in this entity, and you're still trying to will it into existence. So So it's it's not not only only a a very very narrow narrow circumstance, circumstance that could allow it to exist, but it takes a very unique a Jack Bogle.
03:11:52 · Ben Gilbert, David Rosenthal
[03:11:52] S0: And you're gonna have to go through absolute hell to will this thing into existence more so than if you had regular shareholders because you're you you have to do crazy things to get through in the lean years, especially early on. Usually, there's some economic component to being willing to to go through all that. And this is admitting, I will never ever have founder economics or economics of any kind in this entity, and you're still trying to will it into existence. So So it's it's not not only only a a very very narrow narrow circumstance, circumstance that could allow it to exist, but it takes a very unique a Jack Bogle. [03:12:30] S1: Yep. A type of person in the exact specific situation in life where he found himself. I mean, it's his quote from his memoir that I have right here. I realized that a mutual company would never provide me with the personal fortune that so many denizens of Wall Street would earn, but it offered, I believe, my last best chance to resume my career. Even Jack wouldn't have done it if he hadn't found himself in this situation.
03:12:30 · David Rosenthal, Ben Gilbert
[03:12:30] S1: Yep. A type of person in the exact specific situation in life where he found himself. I mean, it's his quote from his memoir that I have right here. I realized that a mutual company would never provide me with the personal fortune that so many denizens of Wall Street would earn, but it offered, I believe, my last best chance to resume my career. Even Jack wouldn't have done it if he hadn't found himself in this situation. [03:12:58] S0: Right. So I I think it kinda mostly boils down to Jack. The other thing that makes this finance, in particular, uniquely well suited to this is lots of people manage to start co op grocery stores and small co op things. In order to expand those businesses, they all require capital, and so you end up with shareholders at some point, or you are small and stay subscale. Finance isn't that. Yep. Finance is like software where it can scale basically infinitely once it overcomes its early fixed cost base. [03:13:28] S1: Yep. Huge operating leverage. [03:13:30] S0: I did think of one other Jack Bogle like character who built a Vanguard like thing, and I'm curious if the thought crossed your mind too. I think Costco thus far has been the most correct analogy that this is Costco on steroids, but it's also something else that was also an acquired episode. [03:13:48] S1: Oh, wow. [03:13:50] S0: It's even in financial services. [03:13:52] S1: I guess Berkshire? [03:13:54] S0: Visa.
03:13:54 · Ben Gilbert, David Rosenthal
[03:13:54] S0: Visa. [03:13:55] S1: Oh, Visa. Yeah. DHOC. Yeah. Absolutely. Absolutely. I mean, I was gonna say Berkshire because Berkshire, as we talked about earlier, does not take fees or carry, but effectively is a private equity firm. But it's not the same because Warren owns a huge chunk of Berkshire. [03:14:10] S0: So worth a $100,000,000,000 [03:14:12] S1: from the successor. Exactly. [03:14:13] S0: He doesn't take outsized economics. He takes commensurate economics. [03:14:16] S1: Yep. I forgot about DHock. You're totally right. [03:14:19] S0: Listeners, for anyone who isn't tuned into our Visa episode, it took a similarly I I'm not sure if selfless is the right word, but a person who was not motivated by getting to own the fruits of their labor, where Dee just decided this is the best structure if all these banks link arms and collectively create this thing that if memory serves, it might have even been a nonprofit or some sort of strange [03:14:46] S1: Mhmm. Structure. It was. Yeah. Yeah. [03:14:48] S0: Strange structure. Now it's a corporation, and it's gone public and all that. For a while, it was But it had [03:14:52] S1: to get restructured in order to go public in 2008, I think it was. Yeah. [03:14:56] S0: Right. But it was there was this realization that there exists a better structure that will uniquely enable this interbank experience, and I wanna will that into existence. It's gonna be my life's work, and I'm not gonna own it. Yep. And I think that's the type of person that it takes to to do this.
03:14:56 · Ben Gilbert, David Rosenthal
[03:14:56] S0: Right. But it was there was this realization that there exists a better structure that will uniquely enable this interbank experience, and I wanna will that into existence. It's gonna be my life's work, and I'm not gonna own it. Yep. And I think that's the type of person that it takes to to do this. [03:15:11] S1: Yep. And you're right. I think there are a lot of parallels between Dee and Jack. But Dee, if memory serves, was an employee Yes. When he started this. So Vizo, yes, he, you know, sort of forewent founder economics, so to speak, but it wouldn't have been on the table for him otherwise. This was his chance to be on the big stage. [03:15:32] S0: Yeah. He had to convince his employer not to be the owner Yeah. But he never could have been the owner Yep. Yep. Unlike Jack. [03:15:39] S1: Yep. Good call, though. I love that. Thank you. Visa connection.